Vonage sees UCaaS playing bigger role in the SMB market

Vonage may still be a relative newcomer in the business services space, but the service provider is seeing a number of untapped opportunities to appeal to the small to medium business (SMB) customer with unified communications as a service (UCaaS) products.

Speaking at the Citi 2015 Global Internet, Media & Telecommunications Conference, Alan Masarek, CEO of Vonage, said that the company is targeting businesses that are looking to replace their aging on-premise PBX phone system with a managed cloud service.

"We're generally taking share from the on-premise PBX," Masarek said. "What you see is about a 40 percent reduction in operating costs with no capex so rather than having to go and buy another key system, you move all of that to the cloud."

Masarek's thesis is not off the mark.

There are typically two main reasons a small business will migrate off a PBX system: lack of space to add more lines and the desire for richer features like one-number dialing for employees.

In particular, Vonage Business Solutions (VBS) says its total addressable market share is larger than other pure play UCaaS players because they serve all of the SMB market, particularly those businesses that have between 2-1,000 seats.

According to Frost and Sullivan, spending on cloud PBX replacement solutions is forecast to rise from $3 billion this year to $10 billion by 2020.

Traditionally known as an over-the-top (OTT) consumer VoIP player, Vonage has been arming itself with a new arsenal of business service capabilities by purchasing both Vocalocity and Telesphere.

The service provider sees potential to grow the existing business of both companies as part of the broader Vonage Business Solutions unit.

When Vonage purchased Vocalocity, it added on $30 million in revenue growth. However, the service provider is confident it can expand that revenue base throughout 2015.

"What's interesting is the market is growing in the 20s and we're growing in the 40s," Masarek said. "The reason I am so excited about the SMB space is that in 2015 our revenues are already equivalent to the pure play guys, we're growing at almost double their rate and we have the best brand and cost structure."

Masarek sees a number of opportunities with both Vocalocity and Telesphere because both of them provide VBS with platforms they did not have before.

Vocalocity brought a proprietary network to Vonage, while Telesphere brought a private MPLS network that leverages a core communications platform from Broadsoft.

"There's a very long tail of Broadsoft distributors, which will have a pretty profound effect," Masarek said. "Because we have the platform in place it will."

In particular, Vonage sees opportunity to not only enhance the relationships Telesphere had with master agents, but also value added resellers (VARs) who traditionally sold PBXs.

"There's not just the existing master agents we're working with but also the VAR channel that sold the PBX," Masarek said. "We're also looking at how to turn foe into friend economically so we're looking to see how can we can work with them."